Ottawa will soon open "exploratory" talks with the United States that could lead to a dramatic liberalization of current air travel rules between the two countries.

The talks are aimed at securing a major modernization of the 1995 Open Skies Agreement.

One possible change could see a U.S. airline being allowed to pick up passengers in one Canadian city and fly them to another Canadian city. Under that scenario, known as cabotage, Canadian carriers could also serve domestic routes in the United States.

Transport minister Jean Lapierre (CP File Photo)

Under current rules, airlines are allowed to fly into or out of the neighbouring country, but must either start or end the flight in their home country.

At a Thursday news conference, Transport minister Jean Lapierre called air liberalization a priority.

'Our carriers are keen'

"Our carriers are keen," Lapierre said. "They would love to be able to go into American markets. They're not afraid of competition."

Lapierre and U.S. Transportation Secretary Norman Mineta issued a joint declaration confirming their wish to update the 10-year-old Open Skies Agreement.

"Many Canadian and U.S. air industry stakeholders have expressed their interest in expanding the agreement," they said.

"Our officials will begin exploratory discussions in the near future to consider a framework to complete the liberalization process between our two countries," the two cabinet members said.

Air Canada again signalled that it wants the rules changed to allow more flexibility.

"It is time for Canada and the U.S. to take the necessary steps to build on the successes of the 1995 Open Skies Agreement by moving to an unrestricted, single aviation market that will generate more choices for consumers and create a healthier North American airline industry," an Air Canada release said.

But some analysts doubt the interest of U.S. carriers in opening up their markets to more competition, pointing out that five American airlines are currently in bankruptcy protection.

"It's not going to happen," said aviation consultant Rick Erickson. "There's no appetite on the part of the U.S."

Other critics say American carriers would want to enter only the well-travelled routes and would ignore Canada's smaller communities.

Lapierre also said he wants to relax ownership restrictions by raising the foreign ownership limit on Canadian airlines from 25 to 49 per cent.

He also wants Canada to pursue more liberal air transportation agreements with India and China.